Inheritance Tax Charges & Trusts

Wednesday, 08 April 2015

Legal update 2015

The Nil Rate Band (NRB) is a tax free allowance, currently £329, 000 in 2015-16 tax year, this is the value of assets we can own without them being subject to Inheritance Tax (IHT). Anything over our NRB allowance will be charged at 40 % IHT. We all have use of one NRB allowance at death and previously had use of more than one when creating multiple Trusts during our lifetime.

Rather than being subject to a 40% IHT charge, many Trusts will be liable to a periodic tax charge every 10 years and an exit charge when capital sums are paid out of the Trust. Periodic charges are based on the value of the Trust fund on the tenth year anniversary and the exit charge is based on the number of the years since the most recent periodic charge.

Previously the periodic charges and exit charges would be calculated separately over the NRB of each individual lifetime Trust. However in the Autumn Statement 2014, it was announced that a new section (62(a)) has been added to the Inheritance Tax Act 1984. This section provides that where two or more trust are created at the same time and, after the commencement of the Trusts, value is added to them then the amount settled in the Trusts after the date of commencement and any value added to the Trusts shall be added together for the purposes of calculating the amount of tax for the periodic charges and exit charges.

The effect of this change is that you will not be able to benefit from one NRB for each Trust, however you can continue to settle property up to the value of one NRB every seven years.